The U.S. stock market wrapped up a tumultuous August on a positive note, recovering from the significant sell-off on August 5th, which marked Wall Street's worst day in nearly two years.
However, as September unfolds, the historical trend suggests that the recent momentum may be at risk due to the typically volatile nature of this month.
The Historical Dread of September
September has long been recognized as the worst month for stock market performance. Since 1928, the S&P 500 has averaged a 1.2% decline, with positive returns only 44.3% of the time. The Dow Jones Industrial Average and Nasdaq Composite reflect similar trends, with both indexes historically recording negative returns. This pattern often stems from traders returning from summer breaks, reassessing their portfolios, and companies preparing for their year-end financials. The last four Septembers were particularly harsh, and this year’s market conditions are even more uncertain with the looming U.S. presidential election in November.
Stocks Poised to Outperform
Despite the challenging backdrop, some companies have a history of defying the September slump. Southwest Airlines (LUV), for instance, has consistently shown resilience during this month, with an average gain of 3.27% over the past decade. Analysts remain cautiously optimistic, with Evercore ISI’s Duane Pfennigwerth upgrading Southwest to outperform, highlighting potential gains from optimizing its fleet and focusing on profit margins.
Despite the challenging backdrop, some companies have a history of defying the September slump. Southwest Airlines (LUV), for instance, has consistently shown resilience during this month, with an average gain of 3.27% over the past decade. Analysts remain cautiously optimistic, with Evercore ISI’s Duane Pfennigwerth upgrading Southwest to outperform, highlighting potential gains from optimizing its fleet and focusing on profit margins.
Cybersecurity giant Palo Alto Networks (PANW) also stands out, with shares up 21.7% this year and an average 2% gain in September over the last decade. Following a robust fiscal fourth quarter, Morgan Stanley analyst Hamza Fodderwala reiterated an overweight rating, citing AI tailwinds and successful platformization strategies driving growth.
Bath & Body Works tops the list with an impressive 6.16% average gain in each of the past 10 Septembers. Despite a 28% year-to-date decline after weaker-than-expected Q2 revenue, analysts predict a potential 38% upside for the fragrance retailer.
Stocks Likely to Struggle
On the flip side, some stocks historically perform poorly in September. Incyte (INCY), a biopharmaceutical firm, and Zebra Technologies (ZBRA), a leader in mobile computing, have both seen average declines of over 8% during this month. Wolfe Research analyst Rob Ginsberg remains optimistic about Incyte, suggesting a potential breakout supported by positive Phase 3 trial results for a key cancer treatment.
On the flip side, some stocks historically perform poorly in September. Incyte (INCY), a biopharmaceutical firm, and Zebra Technologies (ZBRA), a leader in mobile computing, have both seen average declines of over 8% during this month. Wolfe Research analyst Rob Ginsberg remains optimistic about Incyte, suggesting a potential breakout supported by positive Phase 3 trial results for a key cancer treatment.
Other stocks with historically weak September performances include construction company PulteGroup and entertainment giant Paramount Global. These companies typically struggle during this challenging month, making them ones to watch with caution.
Navigating September’s Uncertainty
As investors brace for September, the market faces a mix of opportunities and risks. While historical patterns suggest a challenging month ahead, the market's recent resilience offers a glimmer of hope. However, with potential headwinds from earnings disappointments, economic data, and geopolitical uncertainties, a cautious approach may be warranted as we navigate what is often the most volatile month of the year.
As investors brace for September, the market faces a mix of opportunities and risks. While historical patterns suggest a challenging month ahead, the market's recent resilience offers a glimmer of hope. However, with potential headwinds from earnings disappointments, economic data, and geopolitical uncertainties, a cautious approach may be warranted as we navigate what is often the most volatile month of the year.
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